Franchisors Really Really Want Forced Arbitration Clauses

A federal appeals court just upheld a lower court’s refusal to allow Dickey’s Barbeque Pit to force a franchiSEE into arbitration.

Dickey’s Barbeque Pit (the FranchiSOR) wanted arbitration. Campbell Investments, LLC (the franchiSEE) didn’t. Dickey’s wanted to force arbitration enough to appeal a lower court decision that denied it. Evidently, the Dickey’s Barbeque Pit franchiSOR owners know that arbitration is really really really in their favor.

The Dickey’s Barbeque franchiSORS don’t want the case seen by a jury. I assume this means that they’re afraid that if a jury hears the details, the franchiSORS will lose.

Many franchise agreements have forced arbitration clauses. FranchiSORS control the agreements and write the clauses in, usually convincing franchiSEES to sign by using the argument that forced arbitration is in everyone’s favor. Lots of people make the claim that it saves everybody time and money.

But that’s not true.

The reality is that forced arbitration clauses favor franchiSORS.

A recent report by the American Association of Justice documents what franchiSEES who have lost everything to forced arbitration already know: that forced arbitration is a scam that favors corporations. It doesn’t save everyone time and money. It can be expensive, take a long time, and — worse — it virtually guarantees the larger corporate party (the franchiSOR in this case) a win.

FranchiSEES, most of whom have been defrauded and incredibly wronged, need an opportunity to go before a jury if they are going to get justice. Trial by jury ought to be a Constitutional right, but for endemic franchise fraud to have become so successful, franchiSORS have had to maneuver many ways to get around justice and the Constitution.

Forced arbitration is one of them.

Dickey’s Barbeque Pit, of Dallas, Texas, has come under extreme criticism for “churning.” Even while franchiSEE after franchiSEE fails, headquarters keeps on opening new locations, taking in new franchise fees, and getting new signatures on their dangerous franchise agreements. And, of course, those dangerous agreements contain forced arbitration clauses that virtually guarantee the franchiSOR a win.

And, interestingly, even though Dickey’s is churning and lots of franchiSEES are “failing,” I assume that the lenders keep on writing SBA loans. Dickey’s is on the SBA Franchise Directory after all.

Screenshot from the SBA Franchise Directory showing that Dickey's Barbeque Pit is approved for SBA loans

Dickey’s recent appeal in Campbell Investments, LLC, vs. Dickey’s Barbeque Restaurants demonstrates that Dickey’s is pretty committed to their forced arbitration clauses. Dickey’s really really really wanted to arbitrate. They wanted it so much that after the lower court refused to force the arbitration, Dickey’s appealed the decision to a federal court. It appears that Dickey’s would rather virtually guarantee their win in forced arbitration than face the possibility of a trial by jury.

Fortunately, the federal appeals court upheld the lower court’s decision and the franchiSEE might actually get a chance for justice.

Alarmingly, however, legal offices supporting franchiSORS will now interpret the federal appeal court’s decision as their moment to teach franchiSORS how to be more careful about getting forced arbitration clauses appropriately signed in the future.

In the Campbell Investments case, Dickey’s Barbeque hadn’t been careful to ensure the forced arbitration clause was written into all of the agreements. The clause had been omitted from one of the documents: an Asset Purchase Agreement between, I assume, Campbell Investments and a former franchiSEE…. you know, the only document the franchiSOR didn’t itself sign. That agreement evidently said nothing about the former franchiSEE’s franchise agreement. And, according to the federal appeals court, that omission means that Dickey’s can’t compel arbitration despite the fact that the clause had been disclosed and written into all of the other agreements, including the franchise agreement(s) between Dickey’s and Campbell Investments.

Attorneys for franchiSORS will now interpret this decision to mean that they can teach franchiSORS to be more careful about getting forced arbitration clauses into all of their agreements.

One public example of attorneys using the federal decision to help franchiSORS guarantee wins in the future was published by a law office on September 30th. The law office’s marketing blogposts is literally entitled “Franchisor 101: Dickey’s Arbitration Pit.” The attorneys are prepared to help other franchiSORS avoid Dickey’s mistake of allowing the omission of the desirable (to franchiSORS) forced arbitration clauses.

Screenshot of 'Franchisor 101' title

The law office’s post summarizes the federal appeal’s court decision and then offers potential franchiSOR clients the following advice, “Franchisors intent on arbitrating disputes with franchisees who buy existing franchises should confer with counsel to make sure a written arbitration agreement is in place with the new franchisee. As shown in this case, absent written assumption of the existing franchise agreement, the franchise agreement between the franchisor and prior franchisee will not automatically bind the new franchisee to the arbitration clause.”

So, in other words, these attorneys are here to help franchiSORS make sure they get all the langauge they need to get into the agreements in order to ensure they can get their investment money risk free. If the cases are going to all go to arbitration, the franchiSORS have almost no chance of ever losing anything.

You know… it’ll be nice when franchising is actually fair. I’m sure that moment is coming because it seems highly unlikely that franchiSEES will keep putting up with this treatment in the information age.

Hopefully Congress will get on board and protect people despite the fact that they have the franchiSORS’ lobbyists whispering in their ears.

I’m really disappointed that so many people regularly help franchise fraud happen.

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